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Sales tax proposal blasted

JUNEAU State Sen. Ben Stevens sparred with local government officials on Wednesday over his plan to impose a statewide sales tax in Alaska.

Local governments have been nearly unanimously opposed to his plan to impose a 4 percent sales tax to raise money for cash-strapped state government.

A throng of local government officials testified against his measure during a hearing before the Senate Finance Committee.

Larry Semmens, finance director for the city of Kenai, urged lawmakers to instead consider the permanent fund or an income tax.

That prompted an angry response from Stevens, who is part of a core group of Majority Republicans adamantly opposed to an income tax.

''If income tax is such a great mechanism for revenue raising, how come the Kenai Peninsula Borough doesn't have an income tax?'' Stevens asked.

When told they were barred by state statute from imposing local income taxes, Stevens said the Kenai man should urge his lawmakers to change the law.

Stevens proposed the sales tax after a panel convened by Gov. Frank Murkowski had recommended using a portion of the $28 billion permanent fund to close the state's chronic budget deficits.

Murkowski said he will not continue to use the state's $2 billion Constitutional Budget Reserve to balance state spending and is pressuring lawmakers to find new revenues this session.

Stevens proposed a 4 percent state sales and use tax that would return some revenues to municipalities with their own tax in place.

Under the proposal, the state would collect the tax and return up to an additional 1 percent to those municipalities with rates higher than 3 percent.

For example, in North Pole, where the local sales tax is already 3 percent, residents would pay a 7 percent tax. The state would collect it and return 4 percent to the local government.

Medical and welfare services such as food stamps and vouchers would be exempt along with utilities and other goods and services already exempt in other areas of state law. The tax on major goods and services would be capped at $60.

But about 94 municipalities rely on sales taxes to help fund local government services. The Alaska Municipal League and numerous mayors around the state have come out strongly opposed to Stevens' proposal.

Ketchikan Gateway Borough Assembly member Jack Shay warned that small businesses would lose customers to Internet and mail order businesses.

He cited a study that estimated 2,325 indirect jobs could be lost due to decreased purchasing power under a sales tax plan.

''Imposition of a statewide sales tax will cripple and quite possibly bankrupt several communities in Alaska, with Cordova being right at the top of the list,'' said Cordova City Council member Gary Graham.

But Stevens argued that 45 states have a sales tax in place and most of those are levied along with local sales taxes.

''This is not something that has not been done before,'' Stevens said. ''It's been worked out in other areas around the country, it can be worked out here.''